Schlossberg Urges Vendors To Mirror Retail Strategies

ORLANDO, FL — The key to vending operators’ success — and ultimate survival — is to follow the lead of their retail competitors who are expertly attuned to what consumers seek and how to deliver it profitably, according to industry marketing pioneer Paul Schlossberg, D/FW Consulting (Goshen, NY). Addressing the vexed topic of developing a retail mindset in the vending industry, Schlossberg discussed “Which Comes First? The Customer or the Competition?” at NAMA’s 2006 National Expo here.

Schlossberg is a 30-year veteran of the food industry, specializing in branded product and market development projects. He led off his presentation by quoting Stan Sheetz, founder of the very successful Sheetz convenience store chain, who said: “While the Sheetz of today is seen as a gas station that sells good food, the Sheetz of tomorrow will be seen as a convenience restaurant that sells gas and convenience items. We will create a business that will put Sheetz, as we know it today, out of business.”

The speaker observed that this message also has been conveyed by Michael Linton, chief marketing officer of Best Buy, who said: “It’s a merciless marketplace and if you don’t evolve, others will evolve for you.”

Vending operators have their work cut out for them in a retail environment where convenience stores, doughnut shops, casual dining and quick-service restaurants, drug stores, supermarkets, club stores, mobile caterers and onsite feeders all are contending for an increasingly demanding consumer who is well aware of the many options available, Schlossberg pointed out.

PICKING THE CUSTOMER BRAIN

The retail landscape is in a period of marked and rapid change, with almost 60% of consumers shopping less often, the D/FW founder explained. Shoppers are visiting fewer stores, are driven by speed and convenience, and are doing more of their shopping online than ever before. And, while consumers once were guided by loyalty, habit or restricted mobility in choosing their retail destinations, today they primarily are driven by “need states,” he added.

“Brand loyalty is suspended; you can capitalize on that or be beaten by it,” noted Schlossberg, adding that in the fast food arena, three out of 10 consumers are not committed to one brand. He said Wendy’s and Subway are the two brands with the most loyal followings, with 10% and 12% of patrons, respectively, saying they would only patronize these fast food leaders, while the other 78% of consumers are willing to make purchases at whichever store is most convenient when hunger strikes.

“Why the low level of loyalty? That’s what happens in an environment where it’s all about price, and about how the consumer feels at the moment. There are so many choices at their disposal that it’s a lot harder to gain a consumer’s loyalty,” Schlossberg said.

This lack of loyalty exerts a profound influence not only on where consumers choose to shop, but on how forgiving they are when the item driving them to shop is out of stock. According to Schlossberg, when the desired item is out of stock, 32% of consumers will buy the item they desire elsewhere, 17% will delay the purchase and 11% won’t make a purchase at all. Only 20% will purchase an alternate item in the same category or under the same brand.

“You have to act like a convenience store. They don’t let themselves run out of the items they know consumers want,” the speaker emphasized. “Double or triple up on best-sellers, if you have to, to ensure you don’t go out of stock on items. Otherwise, you’re sending your customers away from your machines.”

He added that convenience stores are increasingly focused on developing store layouts that facilitate the shopping experience, and on incorporating more freshly prepared food into their offerings. Vending operators must pay close attention to what convenience stores are doing to maintain their competitive stance.

Another trend that vending operators should be taking seriously is that Generation Y is heavily dependent on debit and credit cards, and that all of vending’s major retail competitors now are eagerly accommodating them. “You’d better line yourself up for cashless vending and make them happy,” the marketing veteran recommended. “They’re not carrying cash, so how do you expect them to make a purchase from your machines? And if they can get something at the c-store for $1.79, why should you have to charge them $1.80 in an environment where consumers are very price-driven?”

Schlossberg added that Generations X and Y regard the front end of Wal-Mart as a c-store; they shop there because they know they can grab the essentials and check out as quickly as possible. “Wal-Mart observes shoppers closely,” he explained, “and it changes the products on display and the layout of its stores on the basis of research on how people shop, not by instinct. We have to follow their lead.”

Schlossberg also recommended that vending operators get on the nationwide“healthier” eating bandwagon, and a good place to start is the U.S. Food & Drug Administration’s website. A visit to FDA at cfsan.fda.gov/label.html will help in becoming familiar with nutrition labeling. He also suggested that vendors provide links to manufacturer nutrition information on their websites, and post this information near vending machines at locations with managers or patrons who are concerned with wellness.

Like it or not, food safety – more and more broadly defined – is looming large in the perceptions of contemporary consumers, the speaker continued. “You will be approached by knowledgeable customers about acrylamide, a potential carcinogen in some foods, and about the possible risk to health caused by benzene in some soft drinks.

“You have to be more educated than your consumer about health and nutrition,” the veteran marketer added. “And are you prepared and organized for an E. coli outbreak?” asked the speaker.

Conducting business in an environmentally friendly manner is no longer an option in many municipalities, and operators increasingly will be driven in this direction by concerned decision-makers and consumers they serve. “In Oakland, CA, foam packaging is banned. More retailers are finding ways to ‘go green.’ Maybe it’s time for you to hold a recycling drive. You are part of this big retail picture, and you have to bring yourself up to speed on the topicsyour customers are seeing and hearing about all over the media,” the speaker advised. “Key into what’s important to them.”

Speed and convenience rank high on the priority lists of today’s consumers, and new business models are emerging to meet that demand. Schlossberg cited the Internet-based SeamlessWeb, a delivery service that enables consumers in major cities in the Northeast to order food online from more than 1,000 restaurants. “You’re competing with things you never thought you’d be competing with,” he remarked.

RETAILERS REACT

Another such example is offered by Mobo (www.gomobo.com), an online service that turns a cellphone into a “food ordering remote control.” Subscribers to the free program sign up online, thereby gaining the ability to text-message food orders to participating restaurants. They can store the specifics of their favorite menu items,so subsequent orders can be placed at the touch of a button. When the order is received, the customer receives a confirmation in return that includes the exact minute the order will be ready. Mobo automatically charges the total order to the credit card provided during signup; all this allows the patron to retrieve his or her order at a separate pickup counter in the store rather than waiting in line.

Dunkin’ Donuts and Ben & Jerry’s are two of the many food establishments participating in Mobo. “Customers really appreciate when you save them time – and they really resent when you cost them time. Time is more precious than money to most consumers today,” he emphasized. “Vending customers used to take five minutes making a purchase; now they spend three minutes or less at a vending machine. Buy a stopwatch and start timing your customers. It shouldn’t take seven or eight minutes.”

He added that Subway stores allow customers to place their orders online, and the fast food chain is testing kiosks to speed the ordering process. “If potential customers see that the line is out the door, they will walk away,” Schlossberg noted.

With sandwich sales booming, traditional full-line vending operators should follow the lead of the fast-food restaurants and convenience stores that have added calzones, paninis, quesadillas, burritos and fajitas to their menus, as the fading allure of the triangle sandwich is no longer enough to attract consumers.

Schlossberg pointed out that breakfast is currently the biggest daypart for food sales, and that the vending channel is in a prime position to profit from the opportunity. “People are getting up earlier and leaving home without eating; they’d rather be hungry than encounter heavier traffic,” he said. “Look closely at what you’re doing about breakfast to capture these sales. You’re in the immediate consumption business and they’re coming in hungry; do you have what that customer wants, so they’ll see a reason to come to your machines?”

Citing a study by market research firm NPD, Schlossberg said that 72.8% of breakfast is consumed at home, 5.9% is eaten on the go, and 21.3% of consumers skip it altogether. “You have no competition when they arrive at the workplace and haven’t had breakfast. How can you capitalize on this situation?”

In their quests to attract customers, the retail expert urged operators to pay close attention to the design elements that have been developed and adopted by other retail establishments and consider applying them to their breakrooms. “Straight lines are boring; you’re seeing more muted earth tones and brighter, more interesting lighting.

“Think about the places you visit,” he suggested. “McDonald’s is redoing all of its stores with these changes in mind. You need to step back and influence the ‘store design’ in the sites you serve.”

McDonald’s has also kept pace with consumers’ need for speed by taking orders with handheld computers, if the lines get too long. “McDonald’s is also testing sales of bottled water because it’s what customers prefer, even though it’s not as profitable for them as their fountain beverages,” Schlossberg pointed out. “And they’re installing Redbox video and game rental kiosks for $1 rentals, banking on consumers making repeat purchases when they stop in to return their rentals. Pay attention to what McDonald’s is doing.”

Wal-Mart drove a major shift in retailingby “reprogramming” modern consumers to expect everyday low pricing everywhere they shop. “If everything else is the same, then the one with the lowest price will win. Under those conditions, your product is a commodity,” stressed Schlossberg. “If the retailer with the lowest price wins, then you must be the retailer with the lowest prices. That’s why Wal-Mart is winning.”

This is not only a problem for vending, but vendors have to come to terms with it, the speaker urged. “You must invest in the technology to make this happen.”

On the other hand, if everything else is not the same, the lowest price becomes less important. What makes the difference is a combination of quality and distinctive service that Starbucks has labeled “the experience.” Upselling is possible when the offering is not a commodity.

Retailers of both kinds, though, agree on the importance of tracking the performance of every SKU, all the time. Wal-Mart’s initial success was based largely on its pioneering ability to analyze sales continually, and to fine-tune its product mix in accordance with current consumer purchasing patterns.

This, too, is a skill that vendors (and other retailers) must master, Schlossberg said. “You have to be selling what consumers want to buy. Use limited-time offers to gauge demand – and if it works, double up or triple up!”

Operators also should analyze their penetration at each account by examining dollars spent per customer and profit per customer, and take the necessary measures to optimize profitability.

At the same time,a vendor should not be complacent when Starbucks raises its drink prices by 15¢. “Who here has raised your coffee prices? Do it, and post an article next to your machine, reporting that Starbucks has raised its prices,” he suggested.

It’s also critical that operators scrutinize their route productivity in order to increase efficiency and reduce operating costs, especially in view of elevated gas prices.

“Convenience stores are redefining themselves as providers of fresh, high-quality foods; they’re opening on college campuses. At 7-Eleven, you can now customize your fountain drink by adding lemon, vanilla or cherry syrup,” noted the speaker. “If we don’t find ways to be like this, we will be obsolete.”

The foundation of the necessary newmindset is the realization that today’s consumers seek “experiences” when they shop and dine, as well as convenience, comfort and a “connection.”

Operators must key in on the “use occasions” they serve: Is the purchase a snack, a “meal delay” or a “meal replacement”? Are the customers a “captive audience” or passing through? How much time do they have?

The speaker made note of a trend towards “meal demise as snacks arise.” He reported that consumers eat 4.3 times per day, on average; many eat six times daily. Thirty-three percent of consumers eat two or fewer “square meals,” 17% skip lunch once a week and 13% skip breakfast. It’s essential for vending operators to provide choices that satisfy widely varied snack, meal and “meal replacement” cravings throughout all dayparts they serve.

To grab the largest share of market, retailers have three choices: adding more stores (or vending machines); boosting transaction value by “upselling” to customers; and increasing throughput by serving more people in the same amount of time from the same facility. “Watch your peak periods and consider whether it’s worth deploying more machines,” suggested Schlossberg.

He suggested that customers’ top questions for retailers today are:

•What can you do for me?

•Are your prices reasonable?

•How wide is your selection?

•Do you have what I want?

•Is this a solution or service I need?

“Life is a hassle. People are working harder; they’re time-starved. Waiting in line wastes time,” Schlossberg commented, pointing out that customers won’t travel more than 15 minutes – by foot or by car– to make a food or beverage purchase. For this reason, vendors must familiarize themselves with the price-points of their competitors in all channels located within that 15-minute travel radius.

“With snacking being so big, you have to own the peak 2:00 PM to 4:00 PM snack time! If you have what they want, they won’t go out to get it,” the speaker emphasized.

Operators should keep their fingers on the pulse of what customers want by regularly soliciting their feedback, and accommodating their requests whenever possible. “And do everything you can to make the purchasing process fast and easy. Give them a check for double their loss as a refund, if they do lose their money, and they’ll tell everyone you’re not bad folks! That’s worth more than you can imagine when you look at the competition you face,” stressed Schlossberg.

KEEP IT FRESH

To succeed in a retail environment that’s far more complex than the one their predecessors served, today’s vending operators must look closely at consumers’ behaviors and motivations, their ages, ethnicities, lifestyles and purchasing patterns by time of day, and then customize their offerings accordingly.

“It’s not about location, location, location, but about being a destination, becoming one,” Schlossberg noted. “Don’t assume they’re just going to come to your machines unless you give them a reason to.”

Schlossberg pointed to the importance of branding and packaging when planning machine menus. “Manufacturers spend millions of dollars to make their products pop out of the machine; take advantage of that.”

The speaker also advised participants to pay close attention to their “super-heavy users.” While the average c-store customer visits a store 7.7 times per 30 days and spends $6.36 on each occasion, the super-heavy user frequents c-stores 17.4 times in a month and spends $7.41 during each visit. “One of those heavy users equals three medium users and 14 light users! Your routepeople should know these customers by name, and what they are buying; they should do special things for them!”

In closing, Schlossberg recommended operators make a “to do” list, at the top of which should be updating their planograms and investing in technology. He also advised full-ine vendors to provide more fresh food; “Then buy lunch for everyone in the breakroom, and get their feedback,” he suggested. “And take that 15-minute walk or ride to check out the competition. It’s a depressing experience, but you have to do it.”

He reiterated that success in today’s retail environment centers around making products appealing, creating an interesting environment, entertaining consumers and saving them time. “This means going cashless,” Schlossberg stressed. “Turn convenience into value for repeat business from happy customers.”

Summing up his presentation, the speaker advised the operator audience to “get into ‘-izing.’” This means realizing more sales transactions, actualizing more two- and three-item sales, categorizing products in logical groups; and incrementalizing with higher penny profit. “Recognize dayparts and consumer types, individualize planograms at every site, downsize your unprofitable customers and maximize the revenues from your best vending banks!” he concluded.